AOL: Love at First Byte

Fortune magazine reporter Marc Gunther had been scheduled to visit the chairman of America Online in Dulles yesterday for a story whose working headline was "Steve Case Wants to Take Over the World."

At 6 a.m., an AOL executive called Gunther to cancel the interview. "We're buying your company," she said.

The stunning deal under which Case's cyberspace giant is acquiring Time Inc.'s magazines and CNN, among other assets, has sparked a gigabyte's worth of questions about whether they can fairly cover not just AOL but the exploding Internet industry in which it is such a dominant player.

"They are now competing in pretty much every aspect of the Internet business you can think of," James Ledbetter, New York bureau chief of Industry Standard magazine, said of the news organizations. "Virtually every company they could possibly report on is now either a partner or a competitor."

Tom Rosenstiel, director of the Project for Excellence in Journalism, pointed to ABC's problems reporting on Disney--including the killing of a story on a Disney theme park--after the entertainment conglomerate acquired the network. "You just multiply that beyond comprehension and that's how many conflicts there are," he said of the AOL-Time Warner merger. "It's a serious problem: Will people believe them?"

Gunther, who flew to New York to cover the announcement, put it this way: "When I wrote about AOL before, it was clean. Now I'm covering our parent company. . . . Readers and viewers have to approach these big companies with a high degree of skepticism."

The merger means that Case, whose only journalistic experience was on his high school newspaper, is suddenly a major media mogul. As with General Electric's Jack Welch, Viacom's Sumner Redstone and Disney's Michael Eisner, the takeover will put him in charge of some of the world's best-known news organizations.

George Vradenburg, AOL's senior vice president for global and strategic policy, said that Time and CNN "will have the same degree of independence that they have today. They're permitted to write as they see fit," even if that includes criticism of AOL. Case, said Vradenburg, understands "the need to maintain the integrity of your product, and that cannot happen if you've got a publication that's going to get edited for corporate image purposes."

At a more fundamental level, several analysts said yesterday, the creation of the world's largest media and cyberspace company seems to muddy the original dream of the Internet as a democratizing force that would enable thousands of individual voices to compete with major media organs. But the rapid expansion of newspaper, magazine and network sites on the Web has given it a decidedly corporate cast.

"It's a plus if you're one of their shareholders," said Mark Crispin Miller, director of New York University's Project on Media Ownership. "But is there something good about one very large entity being able to reach everybody?"

Said Ledbetter: "The wonders of the information age are in the hands of very few companies."

It was only a decade ago that Time Inc., the company founded by Henry Luce in 1923, was swallowed by Warner Bros. Since then, critics have sniped at Time magazine when it has featured movie or book projects by its corporate parent--from a cover story with the first look at the Warner Bros. film "Eyes Wide Shut" ("Stanley Kubrick's haunting final masterpiece") to a cover story on Microsoft's Bill Gates touting his new book, published by Warner Books.

"We have a long history of covering these things, and we do it with journalistic integrity, and we damn well plan to keep doing it that way," said Time Managing Editor Walter Isaacson. "We have a lot of practice."

Steve Swartz, editor of SmartMoney magazine, said any criticism should be tempered by the reputation of Time Inc. Editor in Chief Norman Pearlstine and his deputies because "their ethics are so far above reproach. There are so many interrelationships in the media business that everyone has to disclose something." As if to underscore the point, Swartz noted that his magazine, a joint venture of Dow Jones and Hearst, has an agreement to supply material for AOL.

Similar questions have swirled around other media mega-deals, such as CBS's purchase last fall by Viacom, which owns MTV and Simon & Schuster. On a lesser scale, The Washington Post recently announced a news alliance with NBC, owned by GE, and MSNBC, which is partially owned by Microsoft.

One of the most embarrassing episodes of corporate synergy followed Time Warner's acquisition of CNN four years ago. When CNN and Time jointly launched a cable program called "NewsStand," they had to retract charges in its debut that American troops used nerve gas during the Vietnam War.

The array of possible conflicts for the newly merged company cuts across all sorts of lines: Will AOL shun content from other online services in favor of Time.com or Entertainment Weekly or Sports Illustrated? Can Fortune and CNN Financial News aggressively cover the ups and downs of AOL stock? Can Time fairly report on such AOL competitors as Yahoo and Amazon.com?

"They are no more likely to cover the Web critically than to raise serious questions about the effects of media violence on children," said NYU's Miller. "You can't cover yourself."

CNN Chairman Tom Johnson said through a spokesman that the network will cover the new AOL Time Warner "with the same standards of journalism that we apply to the coverage of other companies."

For several years now, America Online's explosive growth has brought the company plenty of press coverage. In 1997, a Time cover story said its latest acquisitions "could make CEO Steve Case's strategy look brilliant." A year later, a Fortune cover story said the "thoughtful" Case was "ready to milk his creation for every dollar he can." In October, Money magazine called AOL "the one stock you can't ignore" and praised Case's "vision." Those stories were considered routine--but, if published today, might be seen as suspect.

Time Warner journalists are acutely aware of the dilemma. Josh Quittner, a Time technology writer and editor of Time Digital, said: "I'm hopeful that when the AOL service has problems, we're able to write about those problems just as we would anything else."

Howard Kurtz appears on CNN's weekly media program.

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